Not playing any games: Valve’s appeal evaporates

The Full Federal Court of Australia has upheld the finding of a single judge of the Federal Court that US-based Valve Corporation engaged in misleading or deceptive conduct and made false or misleading representations about the availability of rights under the Australian Consumer Law in Valve’s subscriber agreements and refund policies. Valve is a video game retailer and operates Steam, a distribution platform for games.

The consumer guarantees (for example, that goods are of acceptable quality, fit for purpose, or that services are performed with due care and skill) are not penalty provisions. This means that, while breaches may give certain types of recourse to consumers (such as repairs, refunds, replacements and/or compensation), the ACCC cannot directly seek pecuniary penalties (i.e. fines) against companies that do not comply.

However, the ACCC pursued its case against Valve under sections 18 (misleading or deceptive conduct) and 29 (false or misleading representations) of the Australian Consumer Law (the latter of which is a penalty provision), arguing that Valve made misleading representations about the applicability of consumer guarantees in its subscriber agreements and refund policies (and accordingly, the availability to consumers of refunds).

At first instance, Edelman J found that Valve had breached sections 18 and 29 and ordered it to pay a penalty of $3 million.

There were separate issues in the proceedings (including the appeal) about whether the consumer guarantees (and the ACL more generally) applied to the US-based Valve’s conduct at all.

– First, Valve’s contracts contained clauses to the effect that consumers agreed that “this Agreement shall be deemed to have been made and executed in the State of Washington” and that “any dispute arising hereunder shall be resolved in accordance with the law of Washington”. However, s 67(b) of the ACL provides that the consumer guarantees apply even if there is a term that purports to substitute a foreign law in their place.

– Secondly, for the conduct to be caught by the ACL, the ACCC had to show that Valve’s conduct was in Australia or that Valve carried on business in Australia. Edelman J undertook a detailed factual inquiry (more details here) and found that Valve’s representations involved conduct in Australia and that Valve carried on business in Australia. Therefore, Valve’s conduct was caught by the ACL.

Finally, there was a question of whether Valve supplied goods or whether it supplied services. As discussed in more detail here, Edelman J found that Valve was supplying goods to its customers.

Hot and bothered – Valve’s appeal of the ACCC’s decision

Valve appealed on a wide of issues, including:

– whether the consumer guarantees applied to supplies of computer games by Valve to consumers in Australia;
– whether Valve’s representations (if made) were made in Australia;
– whether Valve carried on business within Australia;
– whether Valve had made the representations and whether they were misleading; and
– whether the $3 million penalty was excessive.

The ACCC also cross-appealed against a finding that Valve did not make certain alleged misleading representations in online “chats” between Valve personnel and Australian consumers. The ACCC did not seek to challenge the $3 million penalty.

Cold water – the Full Court’s decision

On each of the above issues, the Full Court reached the same conclusion as the primary judge, generally for the same or similar reasons. That is:

– the consumer guarantees do apply to supplies of computer games by Valve to consumers in Australia;
– Valve’s representations were made in Australia;
– Valve carried on business in Australia;
– Valve made the representations (with the exception of the online “chat” representations referred to above) and they were misleading; and
– the $3 million penalty was not excessive.

The Full Court found no error in the primary judge’s reasoning and dismissed Valve’s appeal (and the ACCC’s cross-appeal).

When the steam clears

This latest step is not necessarily the last in an already long-running saga. Valve may still seek special leave to appeal the Full Court’s decision to the High Court of Australia.

In the meantime, the case provides helpful guidance to overseas businesses operating in Australia and businesses providing digital content to consumers via online:

Businesses should carefully consider whether they are providing goods, services or both – the Valve case is a worthwhile reminder that what might (at first blush) seem to be a service, can also be a good. The consumer guarantees that apply to goods can be different to those that apply to services.

The fact that an agreement states that it is governed by the law of another country does not prevent Australian consumer guarantees from applying. This can be the case even if the system of law with which a contract has its closest and most real connection is a foreign system of law (as was the case with Valve).

Just because a company is based overseas and manages its website from overseas, does not mean representations made on its website to Australian consumers are not ‘conduct in Australia’. Similarly, the supply of the content is likely to be found to take place in Australia if it is downloaded and accessed in Australia, even if the supplier of the content plays its part in the process from an overseas location.

Even where conduct is not in Australia, the ACL extends to the conduct of businesses that are ‘carrying on business’ in Australia. The Valve case and other recent decisions (see here and here) show that this is not necessarily a high bar.